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Despite The Heat Of The Elections, Commercial Loans Cooling Off
Malaysia Perspective | 20 May 2013
By:

By Yang Ming Wan

The political election fever that has gripped the nation is finally receding as the 13th General Election is now over. However, the showdown between the two opposing camps before the election had obscured the future of the business community, causing them to hold back on making any business decisions. According to the March figures released by Bank Negara prior to the general election, commercial loans showed signs of slowing down thanks to the election.

This may also be an indication of a slowdown in economic activities in the business sector. However, it is more likely affected by the run-up to the general election, as incentives were already handed out as early as the first quarter of this year, particularly the Government’s move to introduce one more assistance plan for Malaysians and other similar cash disbursement measures presented in Budget ’13 last year. These deal sweeteners had a considerable positive impact on the economy in the first quarter of this year.

Commercial Loan Growth Slump To Single-Digit Territory
According to the March data released by Bank Negara, though the growth rate of commercial loans in March dipped from 11% in February to 9.5%, it managed to hover tentalisingly close to the double-digit territory. This indicates that there is still a certain momentum in industrial and business activities, and the knee-jerk dip was due to the uncertainty over the outcome of the general election then. Now that Barisan Nasional has won close to 60% of the parliamentary seats in this election, and there were no stalemates, the prospect for the second half should be favourable.

The slowdown in commercial loan growth rate from double-digit to single-digit had also led to a slowdown in the banking system’s loan growth, retreating from 11.4% in February to 10.6%. Fortunately, household loans remained stable, thus buoying overall loan growth at double-digit levels.

Now that the election is over, and even though the ruling party had won slightly fewer parliamentary seats, the federal government has clung on to stability, and thus bound to step up infrastructure developments under the economic transformation plan. This will lead to more industrial and business activities, and so the current slowdown in commercial loans should not last long.

Future Indicators Fell Across The Board 
Apart from commercial loans, all future indicators of commercial loans have also slowed down significantly out of concern over the volatility of the election result. The amount of commercial loans applied for has declined for the second consecutive month, and has fallen from last month’s -8.4% to -27%. This retreat into double-digit territory has spilled over into the total loan amount applied for, causing it to similarly retreat from -9.2% to -13%. This reflects the cautious mood within the industrial and business sectors as they adopt a wait-and-see attitude before the election results are out.

With this sustained contraction in the amount of commercial loans applied for, the amount of commercial loans approved shrunk substantially by 23.1% in March, which is twice as sudden as the -7.4% in February, and has led the total loan amount approved in March to plunge from -1.2% in February to a double-digit -10.3%.

Despite a universal plunge across all future indicators of commercial loans, home loans have remained stable. Also, since any changes in the commercial loans are most likely triggered by the general election in early May, these worrisome trends will soon be a thing of the past, now that the election has concluded peacefully.

Momentum To Be Restored In The Second Half Of The Year
Future developments will depend on how the Government will speed up the economic transformation plan, in particular whether it will fast-track all the infrastructure development projects, so that the Malaysian economy will continue to grow steadily despite the instability in the external environment and achieve the Government’s goal of becoming a high-income nation.

The knee-jerk reaction to the election did not last. The Government now has a free hand to pursue its original policies. As far as the industrial and business sectors can foresee, provided that good decisions are made, hiccups not withstanding, commercial loans are expected to regain growth momentum in the second half of the year, at the back of the Government’s push towards economic development, while overall loans should be able to maintain a double-digit growth.


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